TELUS Corporation Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Customer Growth: Record second quarter customer net additions of 332,000, up 13% YOY, including healthy mobile phone, connected devices, and fixed net additions.
• EBITDA and Margin: Resilient EBITDA growth of 5.6% and margin expansion of 170 basis points, reflecting progress of efficiency programs.
• Product Segments: TTech mobile's strong customer growth, TTech fixed's industry-leading net additions, TBS's robust growth, TELUS Health's positive performance, TELUS Digital's challenges and positive indicators.
• Strategic Initiatives: Focus on margin-accretive customer expansion, product roadmap innovation (e.g., smart home platform, GenAI), and ongoing cost efficiency programs.

Segment Performance

• TTech mobile: Second quarter customer growth of 262,000 net additions, strongest second quarter on record. Included 101,000 mobile phone net additions and record 161,000 connected device net additions. Blended mobile phone churn 1.07%, postpaid mobile phone churn 0.89% (11th consecutive year below 1%). Q2 ARPU CAD58.49 down YOY due to competitive activity.
• TTech fixed: Industry-leading total wireline customer growth. Achieved 33,000 Internet net additions, 25,000 TV net additions, 20,000 security net additions. External fixed net additions 70,000 (record second quarter). EBITDA growth related to fixed operations.
• TELUS Business Solutions (TBS): Robust growth with 8% YOY cash flow growth. TELUS Health returned to positive top-line growth 4%. TELUS Agriculture and Consumer Goods had revenue growth >15%.
• TELUS Digital Experience: Macro challenges led to external operating revenues down 7.9% YOY. Revised 2024 targets, but saw double-digit revenue growth in AI data solutions line of service in H1.

Guidance

• TTech: Trending to lower end of 2024 targets.
• Consolidated: Free cash flow updated to approximately CAD2.1 billion due to TELUS Digital's revised EBITDA outlook. Annual target for consolidated capital expenditures remains CAD2.6 billion. Confident in generating strong and growing cash flows driven by EBITDA growth and moderating capital intensity.

Risks

• Competitive Pressures: Impact on ARPU and revenue due to intense market activity and competition.
• Macro Challenges: Affecting TELUS Digital's performance, with revised 2024 targets.
• Copper Decommissioning: Execution risks and market dynamics related to monetizing real estate and realizing operational benefits of fiber.

Question and Answer

Q: Vince Valentini from TD Securities asked about revenue growth not translating to much revenue growth despite net subs and if TELUS is considering privatizing TELUS Digital.

A: Zainul Mawji stated they are not satisfied with performance, focused on economic and profitable loading, and Darren Entwistle clarified TELUS has no intention to privatize TELUS Digital, believing in its assets and potential.

Q: Drew McReynolds from RBC inquired about wireless ARPU comparison and contribution of IoT revenues.

A: Doug French confirmed ARPU comparison approach, and Zainul Mawji discussed ARPU initiatives and IoT revenue growth potential.

Q: Jerome Dubreuil from Desjardins asked about aligning telecom and tech objectives.

A: Jeff Puritt discussed TELUS Digital's revenue growth potential, ongoing efforts to achieve growth, and focus on profitable growth.

Q: Stephanie Price from CIBC asked about monetization event for TELUS Health.

A: Darren Entwistle stated they still envision a monetization opportunity for TELUS Health, medium-term oriented, and discussed synergy realization and growth potential.

Q: Tim Casey from BMO inquired about TELUS Health's EBITDA contribution and fixed data growth.

A: Darren Entwistle clarified it's an EBITDA contribution growth number, and Doug French discussed margin enhancement and fixed data dynamics.

Q: Maher Yaghi from Scotiabank asked about re-pricing in fixed data and wireless 5G offering.

A: Zainul Mawji and Doug French discussed re-pricing strategies in fixed data and 5G offering potential.

Q: Simon Flannery from Morgan Stanley asked about copper retirement opportunity.

A: Darren Entwistle and Doug French discussed copper decommissioning benefits, operational savings, and real estate monetization opportunities